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Contrary to popular belief that insurance agents and intermediaries earn commission in at least two digits, an analysis of commission income paid by insurance companies with respect to the total premium (new business premium + renewal premium) shows that insurance agents and intermediaries earn single digit commission.
The data shows that agents and intermediaries earn gross commission of 6% of the total premium. Of the total premium collection of Rs.9.17 lakh crore received by life insurance and non-life insurance companies, insurance companies paid gross commission of Rs.53,000 crore to agents/intermediaries in FY 2021-22. Please note that gross commission is subject to taxes like GST and income tax.
Further, the data shows that of the total gross commission, the life insurance companies and non-life companies paid gross commission of Rs.36,000 crore and Rs.17,000 crore, respectively in FY 2021-22.
Interestingly, while the gross commission income of agents and intermediaries increased over the three financial years in absolute terms, the percentage of gross commission to the total premium did not change in the corresponding period. Let’s take a look at the table:
|
Year |
Life insurance |
Non-life and health |
Total |
Percentage of commission with respect to total premium |
|
FY 2021-22 |
35887 |
16931 |
52818 |
6% |
|
FY 2020-21 |
32994 |
15409 |
48403 |
6% |
|
FY 2019-20 |
31192 |
13893 |
45086 |
6% |
If we analyse the data further, it shows that despite high first year commission, life insurance agents earned 5% on the total premium as against 7% gross commission in non-life policies last financial year.
This is due to lower commission on single premium policies and renewal premium. While life insurance agents get 2% commission on single premium policies, they get 3-5% commission on renewal premium.
IRDAI said, “The commission expenses ratio (commission expenses as a percentage of premium) decreased marginally to 5.18% in 2021-22 from 5.25% in 2020-21. However, total commission increased by 8.77% (total premium growth 10.16 per cent) during 2021-22.”
“The gross commission expenses of general insurance industry was Rs.16,931 crore for the year 2021-22, an increase of 9.87 % from previous year. The operating expenses of general insurers stood at Rs.41,455 crore in 2021-22, showing overall increase of 8.29%,” added IRDAI.
